IDBI Federal Bondsurance: Bond with single-premium play for guaranteed returns

IDBI Federal Bondsurance is a single premium insurancecum-investment plan that promises guaranteed returns on maturity to the policyholder. In the event of death of policyholder before maturity, the nominee is entitled to a death benefit equal to five times the amount of single premium paid by the policyholder. Investors can choose 5-10 years as policy term for this plan.

Key Feature

The tax-free guaranteed returns offered by Bondsurance can be broadly compared to the post tax returns earned in a bank term deposit at the highest tax-slab . Also, policyholders have the option to choose the amount of premium they would like to invest in this scheme, subject to a minimum of Rs 20,000, and get the maturity and death benefits accordingly.

Surrender Value

This being a single premium plan, it does not really make sense for policyholders to surrender the scheme before maturity. However, those in need of liquidity may surrender the policy after a year of commencement. While the surrender value payable will be at the company's discretion, according to the scheme document, the same will not be less than 80% of the amount paid as single premium.

Return Analysis

Assuming investment tenure of 10 years by a healthy male individual aged 30 years, the returns likely to accrue to the policyholder in Bondsurance vis-a-vis a 10-year term deposit in SBI along with Term Plan for 10 years is illustrated herewith:

Our View

At the current peak interest rate of about 9.25% offered by State Bank of India for tenures ranging from 1 to 10 years, the post tax returns of term deposits are more lucrative than those offered by IDBI Bondsurance. But if the interest rates were to gradually cool off from the current levels, say even to 8.5% per annum, Bondsurance stands a good chance to be considered as an alternative investment option to bank deposits from returns perspective.

At an interest rate of 8.5%, the post tax yield from term deposits, at the highest tax slab, comes to around 6.69% while it ranges from 6.34% - 6.92% in case of Bondsurance. However, being a single premium plan, this policy may not be affordable by many retail investors , especially those looking for high insurance cover. As far as insurance needs are concerned , the plan suits those able and willing to pay higher sums as single premium.